Hilsenrath Warns Fed Rate-Hike Timing Debate Intensifying

The Wall Street Journal's Jon Hilsenrath unleashed an instantaneous reaction to today's FOMC minutes and the message is clear - markets are much less uncertain than the Fed about the timing (sooner rather than later) of the first rate-hike. The minutes of the meeting, Hilsy notes, provide fresh evidence of an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and rising consumer prices. The minutes appeared to reflect a slightly more aggressive stance than Ms. Yellen's testimony.

Federal Reserve officials debated at their July meeting whether to move sooner than expected to start raising interest rates in light of an improving job market and rising inflation, but decided they needed more evidence before concluding that was the right approach.

The minutes of the meeting, released Wednesday, provide fresh evidence of an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and rising consumer prices.

Most officials agree they are seeing progress away from high unemployment and very low inflation. Some believe this warrants moving toward tighter credit conditions but many others remain unconvinced.

"Many participants noted that if convergence toward the [Fed's] objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated," said the minutes of the July 29-30 meeting.

"Most participants indicated that any change in their expectations for the appropriate timing of the first increase in the federal funds rate would depend on further information on the trajectories of economic activity, the labor market, and inflation," the minutes said.

Among their concerns: The economy's first-quarter contraction, though seemingly temporary, caused uncertainty about the outlook, as did turmoil in the Middle East and Ukraine, persistent weakness in the housing sector and slow-growing household incomes.

Short-term U.S. rates have been held near zero since December 2008. Most Fed officials believe they can wait until 2015 before raising rates and have encouraged a perception in markets that rate increases won't start until the middle of the year.

Fed Chairwoman Janet Yellen said in testimony to Congress in July that rate hikes might come sooner than planned if unemployment continues to fall faster than expected and if inflation—which has been below the Fed's 2% target for more than two years—moved rapidly toward the goal. The jobless rate was 6.2% in July, down from 7.3% a year earlier.

The minutes appeared to reflect a slightly more aggressive stance than Ms. Yellen's testimony. She balanced her discussion of early rate hikes by also noting rate increasess might be delayed if the economy underperforms. At the July policy meeting, however, discussion seemed to focus on the possibility of early increases and not late increases.

"Some participants viewed the actual and expected progress toward the [Fed's] goals as sufficient to call for a relatively prompt move toward reducing policy accommodation to avoid overshooting the [Fed's] unemployment and inflation objectives over the medium term," said the minutes, which don't identify the participants by name or specify the number who held certain views.

The Fed has been saying for months it expects to keep rates near zero for a "considerable time" after it completes a bond-buying program in October. Officials who want early rate increases are pushing the central bank to drop that guidance.

"The guidance suggested a later initial increase in the target federal funds rate as well as lower future levels of the funds rate than they judged likely to be appropriate," the minutes said.

Ms. Yellen will deliver remarks at the Kansas City Fed's gathering in Jackson Hole, Wyo., on Friday, a chance for her to update the public on her views about how the job market is progressing.

While officials debate the timing of rate increases, they are making progress on ironing out details of how to raise rates. Minutes showed they agreed they will use two levers—interest they pay banks on reserves and interest they pay others such as money market mutual funds—to keep short-term rates in a gradually rising band once the time for rate increases begins.

Theyre just testing the waters here. If the market gets pissy Mr. Chairsatan herself will come out and say 'lol j/k', just like Bernanke did after he said the t-word. At which time the market not only recovers all previous losses, but goes to new all time highs just for the fuck of it.

Either way, the important point is they care more about how they are perceived, rather than how destructive their policies are. The Fed has and always will have PR be its main priority.

Amazing how slow the FED sends the article over for Hilsy to autograph vs their HFT market rigging machines.

But it's time for actual action. Let's raise rates. C'mon mouthpieces.... either do it or STFU because talking about it gives the world the perception that "talk" is the Fed's only policy tool left (which it is, but I digress).

A) When to implement EU & US Bail-Ins
B) Does everyone agree to War again in Iraq & Ukraine?
C) Is the UK on board for Bail-Ins?
D) We welcome Asian Members to the Club, they now own 10% of US Assets valued at $10 Trillion
E) Guidance will be to move Investments toward hard assets like apartment buildings, Farm Land, Resort Property, and Energy & Water producing Lands & Concerns
F) Privatization in the US has a ways to go at this point, however state & county debt levels & University Debt levels are now in place to provide the basis for planned Privatization drives in 2015

+1. Financial crisis now morphing into a sovereign/political crisis which of course moves from currency wars to trade wars and eventually to shooting wars. We are proxy mode right now for the shooting wars.

The FED can go fuck itself. No one is moved anymore by the jawboning. Everyone knows the FED is nothing more than smoke and mirrors, markets are rigged, munis/pension funds have financial guns to thier heads, political systems are bought and paid for, etc.

I think that is where it all comes apart too. Just like ancient Rome. Soldiers, cops, etc. all looting the crap out of the system for what they were promised but the politicians failed to deliver. The last acts will be massive screwing of everyone by everyone.

Perhaps this is why they finally feel good about raising rates. Perhaps our economy has hit the Max Pain threshold (as seen by recent US consumer spending plateau and decline). Consumers are already tapped beyond maximum, trying to keep up with their bills. Raising rates by October will ensure that they can signal the "correction" (the stripping of retirement accounts), and blame the outcome (crisis) on Ebola, Putin, ISIS, racism, and domestic terrorists (those with an IQ high enough to remember anything from a political science or government class). Afterwards, bubble blowing can resume as normal. By then, these will have seemed like the good ol' days.

They do want the retirement accounts, that is certain. They've lured everyone with retirement money into equities, perhaps for the very reason you describe.

However, raising rates and blowing up the world is wildly deflationary. And the problem with that is you don't know either where it will end, or who all will be devoured by it. Seems like a very risky way to "get those static non-productive accounts".

I don't know. I have the suspicion the pukes at the Fed are not as smart as we are hoping they are, and really simply do not have a plan at all.

I agree with you cougar, about pretty much all of what you said. With regards to the anti-mandated deflation, I think that the crisis moment will be a somewhat instantaneous write-down, which will allow new bubbles, once the croupier clears the table. As far as the tools at the FED, they may not be too smart, but I think that that's why they are there (like our last several presidents). Didn't Greenspan "earn" his place at the FED by perpetuating the Keating fraud? My opinion is that the ones pulling the strings have a plan; but, I will admit it is possible that the "planners" have lost touch with their ability to achieve their goals.

In any case, it seems like the recent goal has been the destruction of value(s). I think about the movie Hudson Hawk - the bad guys' plans for world domination was centered around flooding the markets with phyzz. Today, of course, TPTB have avoided the "alchemist" route by flooding the markets with paper.

This brings me to effectively the same place as yourself- there are two possibilites, and I oscillate between them in what I think is true.

1) The conspiracy is large and in charge - if this is the case, then the key is to get insider info, and to ride the coat tails of the planners to victory (or at least to a reasonably comfortable life).

2) The conspiracy is arrogant and shortsighted - if this is the case, then keep stackin' because price discovery will eventually make us rich!

I don't know either, cougar. These are strange days, to be sure. I agree that deflation is risky to the banksters, but much less so when peons have no cash to spend. Besides, the ISIS, Ebola, and Putin games all seem pretty risky, too (as well as the dumbing down of America). Thanks for the feedback!

I just cannot see how they can ever raise rates. Not for a generation at least.

So can they end QE? Doesn't that mean then that the Fed has to buy all those UST issues themselves? Can they even do that, in any real sense?

I have been saying for 4 solid years they cannot end QE, and I still don't see any viable exit (unless they are willing to let UST go without bid -- my god) So how the hell does this story end? How can they ever close the book?

I guess events will have to take over and end the story for them while they stand shaking in their boots unable to move in any direction. Sounds unorderly to me. Sounds like one of the inner rings of economic Hell, to me.

I am so tired of hearing that the Fed is going to or should raise rates. WHY in the hell would they raise their rates???? Look at the 2yr and 10 yr - you go on down the line. I agree that at some point their rates should not have been so low, but at this point it is probably exactly where it should be. If the economy is going to tip over, let it do so under it's own weight. No need to jack up rates the Fed controls, only to have to reverse course almost immediately which is what it would cause.

This BS with the usd is earily similar to the same crap Carney was pulling with the BoE raising rates until 6-7 weeks ago...The usd isn't going to stay at these levels folks. Energy and other exports will get eaten alive with a stronger dollar.

The demand for commodities and oil has dropped considerably over the last few months. Has anyone noticed a large drop in fuel or food prices from the stronger usd? I sure as fuck haven't.

What you describe is consistent with a late-end-game strategy. Here is how something like that might play out:

The big players (energy, retail and commodities) know the music has stopped. They've been watching for this exact event for months. They are no longer worried about classic supply/demand dynamics, attracting customers, building pipeline, forget all that they are keeping prices high until the last buyer of anything falls over dead. Arbing the dollar and extracting value -- just grabbing everything you can grab, with both hands -- with no thought for any kind of future.